An agriculture-led revival as flawed claim

Paper:

Mains: General Studies-III: Technology, Economic Development, Bio diversity, Environment, Security and Disaster Management

Context:

  • A rather confident statement heard in the midst of India’s COVID-19-induced economic slowdown is this: “Agriculture will lead India’s economic revival”. But how valid is this claim put forward by government spokespersons and some observers?

Recent Data/key Statistics:  

  • Agriculture was the only sector which recorded a growth of 3.4%. Most other sectors saw a contraction, with sectors like construction, trade, hotels, transport and communication services registering almost 50% fall.
  • India’s foodgrain production in 2019-20 was 3.7% higher than in 2018-19 and also the procurement of Rabi wheat in 2020-21 was 12.6% higher than in 2019-20.
  • The food inflation in the Q1 of 2020-21 has been higher than in the previous year.
  • The area under Kharif sowing in 2020-21 is 14% higher than in 2019-20. This has been accompanied by higher tractor and fertilizer sales, which bodes well for economic recovery.
  • The government’s ₹20-lakh crore Atmanirbhar Bharat package is expected to increase financial resources to the sector and provide an impetus to agricultural growth.

Rabi procurement

  • Procurement of rabiwheat was higher in 2020-21. As per official data, only 13.5% of paddy farmers and 16.2% of wheat farmers in India sell their harvest to a procurement agency at an assured Minimum Support Price (MSP).
  • The rest sell their output to private traders at prices lower than MSP.
  • The market arrival of agricultural produce is a more comprehensive indicator of enhanced production or increased supply to the markets.
  • The market arrivals of the major crops have shown a decline from last year.
  • The market arrivals of 15 major crops were lower in 2020 than in 2019. Most of these crops have witnessed a steep drop in market arrivals. In wheat, the most important Rabi crop, only 61.6% of the arrivals in 2019 was recorded in 2020.
  • The procurement by the government agencies accounts for only a small share of the total grain production.
  • As per official data, only 13.5% of paddy farmers and 16.2% of wheat farmers in India sell their harvest to a procurement agency at an assured Minimum Support Price (MSP). The rest sell their output to private traders at prices lower than MSP.
  • There have been reports of market access problems faced by farmers during the lockdown attributed to a disruption in supply chains, closure of mandis and a fall in consumer food demand. This has led to a substantial loss of market for the farmers leading to a major loss of incomes. Similar major losses have been reported in the milk, meat and poultry sectors as well.

Inflation and prices

  • Inflation rates estimated using consumer price indices are not representative of farmer’s prices.
  • Inflation was largely due to disruptions in supply chains and rise in trader margins
  • The wholesale market prices, which can be considered more indicative of the price received by the farmers, have decreased for most crops.
  • Given the fact that small and marginal farmers are net buyers of food, higher rural inflation has had an adverse impact on them.
  • They were forced to pay more for food purchases and some rural households had to reduce food purchases during the lockdown.
  • This would have also had an adverse impact on their disposable income and expenditure and investment capabilities.

Higher Kharif sowing

  • As the Rabi incomes fell during the lockdown, many rural households may have returned to farming or intensified farming for food- and income-security during the current Kharif season.
  • Lakhs of migrant workers have returned to their villages from urban areas.
  • This might further aggravate the disguised unemployment problem in the agricultural sector due to the surplus labour supply.

Atmanirbhar Bharat package

  • The total fresh spending for agriculture in the package amounts to less than Rs. 5,000 crore.
  • The under-investment in the agricultural sector may prove to be counterproductive as this will lead to a condition where the rural incomes will remain depressed, and push the economy further into a vicious cycle of poor demand, low prices and low growth.

Uncertainties

  • The agricultural sector faces headwinds in the form of higher-than-ideal rainfall in August in several key crop-growing regions in western and central India and the uncertainty with respect to the impact of recent farm market ordinances.

Share of the agricultural sector in GVA

  • Agriculture contributes only around 15% to India’s Gross Value Added (GVA).
  • An impressive 4% growth in the agricultural sector will only contribute to 0.6 percentage points to GVA growth. To contribute a full one percentage point to GVA growth, agriculture will have to grow by 6%, which is unlikely.
  • Though the higher Rabi procurement, higher Kharif sowing and flow of cheap credit will help provide an impetus to the sector, the lower crop prices, lower market arrivals and higher unemployment would also have a bearing on the actual growth rates in the sector.

Way forward:

The crisis in agriculture demands that the government announce a strong fiscal stimulus for the rural economy. This will help address the existing distress in the short term. The amounts being paid through the Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) should be doubled from Rs. 6,000 a year to Rs. 12,000 a year. Efforts should be made to not only enhance the coverage monetarily but also include tenant farmers and wage labourers as well.


The great greying of China

Paper:

Mains: General Studies- II: Governance, Constitution, Polity, Social Justice and International relations.

Context:

There is evidence that the country’s aging population will incrementally impede its economic growth

 Background:

China’s one child policy (OCP) was conceived by Senior Leader Deng Xiaoping in 1979 to seek popular support for the Chinese Communist Party (CCP) after Mao’s disastrous ‘Great Leap Forward’ and ‘Cultural Revolution’ (which led to the death of about 60-65 million people).

Prof. David Lampton, an American sinologist, has observed that Deng was worried that “if the party did not produce significant gains in per capita income, it would lose what little legitimacy” it had retained.

Policy Fallout:

  • The total fertility rate in China has fallen to 1.6 births per woman in 2017, much below the population replacement rate of 2.1. This would imply that the absolute population would decrease over time.
  • Total fertility rate (TFR) refers to the total number of children born or likely to be born to a woman in her lifetime if she were subject to the prevailing rate of age-specific fertility in the population.
  • In India, the average birth rate stands at 2.24.

Implications:

  • Fewer children are being born and of them, fewer were females given the preference for boys in Chinese society. This would have an adverse impact on the sex ratio.
  • There are concerns that skewed sex ratios lead to more violence against women, as well as result in human-trafficking.

Impact on the childbearing attitude of Chinese

  • Despite the raising of the limit to two children in 2016, the number of newborns has not improved in China and has slipped to the pre-2016 level.
  • The one child policy has had a negative impact on China’s child-bearing attitudes as many young couples do not want to have two babies for economic and lifestyle reasons.

Economic impact

  • As against the popular perception that the population decline will help create a richer society in China, it is very much possible that the country’s aging population will incrementally impede its economic growth.
  • The available labour force (aged between 20 and 64) will reduce from about a billion in 2017 to 787 million by 2050. The fall in the number of people in the labour force will lead to a decline in manufacturing, exports, and also mean lower revenues for the government.

Way forward:

  • Developed countries too have faced the problem of an aging population. Example: Japan and Germany.
  • Developed countries have reduced the impact of the declining population by raising the total factor productivity (TFP) growth rate.
    • Reforms in the various sectors of the economy to make them more efficient.
    • Improvement in governance which could help ensure ease of doing business.